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Thursday, 26 April, 2001, 05:55 GMT 06:55 UK
Japan's economic outlook bleak
Bank of Japan
Bank of Japan offers bleak economic outlook
The Bank of Japan has painted a bleak economic picture of weak growth coupled with intensifying deflation in its half-yearly report.

But a 1.6% rise in retail sales in March from a year earlier provided a ray of hope for new Prime Minister Junichiro Koizumi.

One of his main tasks will be to try and turn around the world's second-largest economy after a decade of stagnation.

Prime Minister Junichiro Koizumi
Fixing the economy Koizumi main task
The BOJ's report showed that the central bank's Policy Board expects the economy to grow in a range of 0.3% to 0.8% in the year that started on April 1.

The forecasts, is well below the government's growth target of 1.7%.

Falling domestic prices and slowing worldwide growth are likely to hurt the economy, though global economies may recover a bit in the second half of the fiscal year, the report said.

"In the first half of fiscal 2001, the global economic slowdown will probably continue to depress Japan's exports and production, and thus the economy is likely to remain sluggish as a whole," the BOJ said.

New leader

On Thursday Junichiro Koizumi was elected prime minister, after his predecessor was toppled from power following a string of scandals and his failure to pull the nation out of its deep economic doldrums.

He has not yet named his cabinet, but Japanese media have tipped the highly regarded current head of the financial services watchdog, Hakuo Yanagisawa, for a key post.

Many economists believe deflation is likely to persist in Japan for another two years, especially if Koizumi follows through his pledge to purge banks of their hefty bad loans, which would trigger a wave of bankruptcies.

The economy has been hard hit by the massive bad debts at Japan's banks and sinking stock market prices.

Central bank efforts

In a bid to stamp out deflation, the BOJ adopted a radically different monetary policy last month, deciding to flood the banking system with excess reserves until consumer prices, excluding fresh food, stopped falling.

"During my tenure, one disappointment was that consumer spending did not grow as much as I had expected. I think it is a matter of time (for it to rise) but it is regrettable," the outgoing finance minister Kiichi Miyazawa told a farewell news conference.

The shift effectively reduced interest rates to zero, and the BOJ's latest inflation forecasts strongly suggested the new policy will remain in force at least well into next year.

See also:

26 Apr 01 | Business
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